| In the first chapter of my dissertation "The Worst, the Best, Ignoring All the Rest: The Rank Effect and Trading Behavior" I document a new stylized fact about how investors trade assets: individuals are more likely to sell the extreme winning and extreme losing positions in their portfolio ("the rank effect"). This effect is not driven by firm-specific information or the level of returns itself, but is associated with the salience of extreme portfolio positions. The rank effect is exhibited by both retail traders and mutual fund managers, and is large enough to induce significant price reversals in stocks of up to 160 basis points per month. The effect indicates that trades in a given stock depend on what else is in an investor's portfolio.;The second chapter of my dissertation is "Economic Uncertainty and Interest Rates." A number of asset-pricing models predict a positive relation between the risk-free interest rate and expected economic growth, and a negative relation between the interest rate and the uncertainty (i.e. the conditional variance) of growth. I document that uncertainty and the interest rate have a strong negative relation. This holds when examining up to 140 years of data, using various measures of economic growth and uncertainty, and after controlling for inflation. The result has a number of implications for models such as habit and long-run risks. A negative relation between habit and the interest rate disappears after controlling for uncertainty. Previous research presents a puzzle as to the lack of relation between the macroeconomy and the real interest rate which this paper partially resolves. |
